Our strategy is to scale up 20 local developers across 20 cities to produce 5,000-10,000 homes every year
Real Estate

Our strategy is to scale up 20 local developers across 20 cities to produce 5,000-10,000 homes every year

- Rajesh Krishnan, Managing Director & CEO, Brick Eagle

Budget 2017-18 has given a new dimension to Affordable Housing by granting it ´infrastructure status´, prompting celebration among first movers in this segment. Among these is Brick Eagle, a financial services platform for the Affordable Housing industry, uniquely positioned to enable development by bringing together the essential elements required for housing supply and incubating companies to fill gaps in the ecosystem. Rajesh Krishnan, Managing Director & CEO, Brick Eagle, shares more in conversation with SHRIYAL SETHUMADHAVAN.

How has the Budget announcement impacted your plans?
For the Affordable Housing sector, we could not ask for more. One big challenge in this segment is that it majorly involves small-sized and local developers. Unfortunately, banks were unable to differentiate between Affordable Housing and the rest of real estate. Banks have a 10 per cent cap on lending to the real-estate sector. However, with the ´infrastructure status´, funds to Affordable Housing projects will not be from the real-estate bucket and banks are now more open to lending to this sector. So, there is better access to capital. Additionally, there is a lot of sanity with regard to the joint development agreement (JDA). For instance, tax will be applicable only when the landowner actually makes money unlike before, where it was upon signing the agreement.

What differentiates Brick Eagle from a classic fund?
To date, not many institutional investors were willing to invest equity in Affordable Housing projects. It is difficult for a large fund, sitting on a few billion dollars, to evaluate Affordable Housing projects as investment requirement is usually Rs 10 crore per project. It could go up to Rs 30 crore at most for a large project. If you undertake a project worth Rs 1,000 crore, chances are that you would not require more than Rs 30 crore of equity. This is also because most Affordable Housing is funded from customer payments. So, we decided to fill the gap when we started about six years back. Our strategy is different from a classic fund. We almost operate like an NBFC, with a product programme, processes and standardisation. This enables us to do a lot of small deals across various cities. Now, we want to raise $100 million to do more of the same.

Having received SEBI´s nod to raise a Rs 700-crore fund from investors, how are you planning the disbursement?
The entire country is open for business. Affordable Housing is an urban problem, and hence, a requirement in every city. Disbursement is not the problem but we want to ensure that when we invest, homes get delivered, and we get financial returns. We also have a social objective - every time we invest a million dollars, we aim that at least 500 homes if not 1,000 homes are built. Typically, we have a one or two-year courtship period with these developers. We spend time working with them to understand how they function and their governance standards. If need be, we appoint a CFO there, implement the ERP and basically make it a well-oiled machine before we bring in third-party money.

We spend a lot of time in making the developers bankable. So, essentially, a large part of what we do is capacity building and making developers ready for investors. This is a year-long process.

At present, which developers are you working with?
We are working with five developers: Sheltrex, Playtor, DBS, Olympeo, and RS Stones, which we are going to rename Brick Fields. These companies are working in four states across nine cities. Additionally, we are in talks with several other local developers.

You are trying to fill a void - to offer funding even prior to approvals...
By equity, I mean we are entering at the pre-approval stage. Local developers (who today supply most of Affordable Housing in India) do not have access to capital. Even if they do, it comes in at a time when they don´t need it. The bulk of the money is required in the pre-launch stage to tie up the land, work on the master plan and receive approvals, followed by marketing, site preparation, trunk infrastructure, sample houses, etc. This is where we step in - India needs equity of about $10 billion every year for Affordable Housing; the field is wide open.

The company has a land bank of nearly 1,000 acre. You also plan to build 1 million housing units by 2030...
We started as a fund in Affordable Housing and eventually realised that if we have to do this in scale, we need to enhance the execution capability. For a country that needs 5 million homes a year, apparently not a single developer in the country is producing even 5,000 homes a year. We started an incubator to back local developers with some track record and aspirations to scale up. Our strategy is to pick 20 local developers across 20 cities and help them scale up to produce 5,000-10,000 homes every year. Once successful, as a group, we should be doing 100,000 homes a year. Additionally, for execution capability, we want to work with local developers on capacity building, and back them with capital to fuel their growth.

Going forward, are there any key announcements expected from Brick Eagle?
We are in the process of closing an Anchor Investor for our Rs 700-crore fund. You can expect to hear an announcement on this soon.

To share your views on this interview, write in at feedback@ConstructionWorld.in

- Rajesh Krishnan, Managing Director & CEO, Brick Eagle Budget 2017-18 has given a new dimension to Affordable Housing by granting it ´infrastructure status´, prompting celebration among first movers in this segment. Among these is Brick Eagle, a financial services platform for the Affordable Housing industry, uniquely positioned to enable development by bringing together the essential elements required for housing supply and incubating companies to fill gaps in the ecosystem. Rajesh Krishnan, Managing Director & CEO, Brick Eagle, shares more in conversation with SHRIYAL SETHUMADHAVAN. How has the Budget announcement impacted your plans? For the Affordable Housing sector, we could not ask for more. One big challenge in this segment is that it majorly involves small-sized and local developers. Unfortunately, banks were unable to differentiate between Affordable Housing and the rest of real estate. Banks have a 10 per cent cap on lending to the real-estate sector. However, with the ´infrastructure status´, funds to Affordable Housing projects will not be from the real-estate bucket and banks are now more open to lending to this sector. So, there is better access to capital. Additionally, there is a lot of sanity with regard to the joint development agreement (JDA). For instance, tax will be applicable only when the landowner actually makes money unlike before, where it was upon signing the agreement. What differentiates Brick Eagle from a classic fund? To date, not many institutional investors were willing to invest equity in Affordable Housing projects. It is difficult for a large fund, sitting on a few billion dollars, to evaluate Affordable Housing projects as investment requirement is usually Rs 10 crore per project. It could go up to Rs 30 crore at most for a large project. If you undertake a project worth Rs 1,000 crore, chances are that you would not require more than Rs 30 crore of equity. This is also because most Affordable Housing is funded from customer payments. So, we decided to fill the gap when we started about six years back. Our strategy is different from a classic fund. We almost operate like an NBFC, with a product programme, processes and standardisation. This enables us to do a lot of small deals across various cities. Now, we want to raise $100 million to do more of the same. Having received SEBI´s nod to raise a Rs 700-crore fund from investors, how are you planning the disbursement? The entire country is open for business. Affordable Housing is an urban problem, and hence, a requirement in every city. Disbursement is not the problem but we want to ensure that when we invest, homes get delivered, and we get financial returns. We also have a social objective - every time we invest a million dollars, we aim that at least 500 homes if not 1,000 homes are built. Typically, we have a one or two-year courtship period with these developers. We spend time working with them to understand how they function and their governance standards. If need be, we appoint a CFO there, implement the ERP and basically make it a well-oiled machine before we bring in third-party money. We spend a lot of time in making the developers bankable. So, essentially, a large part of what we do is capacity building and making developers ready for investors. This is a year-long process. At present, which developers are you working with? We are working with five developers: Sheltrex, Playtor, DBS, Olympeo, and RS Stones, which we are going to rename Brick Fields. These companies are working in four states across nine cities. Additionally, we are in talks with several other local developers. You are trying to fill a void - to offer funding even prior to approvals... By equity, I mean we are entering at the pre-approval stage. Local developers (who today supply most of Affordable Housing in India) do not have access to capital. Even if they do, it comes in at a time when they don´t need it. The bulk of the money is required in the pre-launch stage to tie up the land, work on the master plan and receive approvals, followed by marketing, site preparation, trunk infrastructure, sample houses, etc. This is where we step in - India needs equity of about $10 billion every year for Affordable Housing; the field is wide open. The company has a land bank of nearly 1,000 acre. You also plan to build 1 million housing units by 2030... We started as a fund in Affordable Housing and eventually realised that if we have to do this in scale, we need to enhance the execution capability. For a country that needs 5 million homes a year, apparently not a single developer in the country is producing even 5,000 homes a year. We started an incubator to back local developers with some track record and aspirations to scale up. Our strategy is to pick 20 local developers across 20 cities and help them scale up to produce 5,000-10,000 homes every year. Once successful, as a group, we should be doing 100,000 homes a year. Additionally, for execution capability, we want to work with local developers on capacity building, and back them with capital to fuel their growth. Going forward, are there any key announcements expected from Brick Eagle? We are in the process of closing an Anchor Investor for our Rs 700-crore fund. You can expect to hear an announcement on this soon. To share your views on this interview, write in at feedback@ConstructionWorld.in

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